Former state Sen. David Sibley, co-author of the Texas deregulation law, recently suggested to a reporter that he linked wholesale energy prices to natural gas pricing in Senate Bill 7 as a way to discourage the production of new coal plants and to phase out old nuclear generators. He said this was a concession to environmentalists.

In fact, that linkage has had the opposite effect.

In Texas’s wholesale market, prices in the balancing energy market are set by the highest price that ERCOT is required to accept to meet demand. Most of the time, that price is one offered by a natural gas-fired plant. Within the balancing energy market, everybody receives that same, gas-based price. Furthermore, the price in the balancing energy market is very influential in Texas — even energy bought and sold in private bilateral transactions is often priced at or near a gas-based price. In such an environment, the market players who benefit are those whose power plants have lower marginal costs (primarily fuel costs) than a gas-fired plant. Which plants are these? Coal, lignite, and nuclear plants, each of which has much lower marginal costs to produce each additional unit of energy than a natural gas plant.

In short, the linkage between natural gas pricing and prices in Texas’s deregulated wholesale market makes coal, lignite, and nuclear plants more profitable, not less. Why Senator Sibley thought that this arrangement would somehow disadvantage those plants isn’t clear, but what is clear is that Texas consumers have felt its effect in their pocketbooks.

— R.A. Dyer

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